Author Archive

5 ways to collect on a judgment

Written by Laura Agadoni on . Posted in edited, For Landlords, Laws & Regulations, Leases & Legal, paid, Rent & Expenses, Screening

Collecting on a JudgementThe bad news: your tenant left owing you money.

The good news: you just won a money judgment in court against that tenant.

Time to celebrate?

Not really.

Although you’re supposed to get the money your tenant owes you after you win a money judgment, actually getting the money is another matter.

It’s not always easy to collect money on a judgment.

The court’s job ends with the judgment. Collecting on that judgment is on you. Your ex-tenant might pay you immediately, and if so, great. Now it is time to celebrate. But what do you do if they don’t?

Related: How to file a small claims lawsuit against your landlord or renter

1. Ask for it

This simple solution often works. Draft a letter to your ex-tenant requesting the money.

  • Let this person know what they owe you.
  • Tell them if they don’t pay by X date, you will begin a collection process.
  • Mention that if you begin a collection process, the transaction will appear on their credit report.
  • You might wish to remind your ex-tenant that having a collection on their credit report will make it difficult to rent another place or to obtain a mortgage.

Many tenants, not wanting their credit affected, will pay.

2. Garnish wages

Almost every state allows wage garnishment, a process that allows creditors to take up to 25 percent of a debtor’s wages until the debt is paid. You must know where your ex-tenant works to do this. You might have this information on the application your ex-tenant filled out. The rest of the procedure varies by state, but typically, you do the following:

  • Go to your local courthouse and ask for a garnishment order.
  • This goes to your ex-tenant’s employer.
  • The employer then withholds money from your ex-tenant’s paycheck until the debt is paid to you.

3. Garnish bank account

Similar to wage garnishment, you must know something about your ex-tenant—in this case where they bank—and ideally, their bank account number. You might have some bank information on the application your ex-tenant filled out, or you can get the information from a cancelled check. If your tenant paid you by check, then you have it. If not, you might be able to find someone who has received a check by your ex-tenant. You then go to your local courthouse and follow the procedure for garnishing the bank account.

4. Request information from the court

If you don’t know where your ex-tenant works or where they bank, you can request a formal procedure at your local courthouse, usually called a “debtor’s examination.” Your ex-tenant might then be ordered to fill out a form that lists their employer and bank information. Or they may be subpoenaed to appear before the court at a hearing to answer your questions. You will have the opportunity to find out the information you will need to collect money:

  • Where they work
  • The contact information of their employer
  • Where they bank
  • Their bank account number

5. Hire a collection agency

You’ll have to pay to use a collection agency, but recovering some of your money is better than receiving nothing. Unfortunately, the odds of a collection agent being successful in collecting money your tenant owes you are not that good. But you can increase your chances by hiring a recommended and reputable collection agency that specializes in working with landlords. Ask your lawyer, accountant, or other professional you know for a referral.

Related: The problem with collection agencies

The bottom line

Sure, you can collect on a judgment. But there’s no guarantee you’ll be successful or whether it will be worth your time and effort to pursue the money. Only you can make that determination based on how much your tenant owes you and on how busy you are. In most jurisdictions, you have between five and 20 years to collect. So if you’re not up to the job now, or if your ex-tenant has no assets at this time, you might be able to collect your money in the future.

The best course of action is to screen your tenants before renting to them. There’s no guarantee you won’t be burned when you screen tenants, but your chances of renting to a deadbeat tenant are lessened. Keep in mind that the Cozy tenant screening process is free for landlords, and I highly recommend it.

Related: 6 Ways to Find Your Deadbeat Ex-Tenants

What to do if the deposit doesn’t cover the damage or unpaid rent

Written by Laura Agadoni on . Posted in edited, For Landlords, Laws & Regulations, Leases & Legal, Move-in/Move-out, paid, Rent & Expenses, Screening, Security Deposits, Step 13 - Return Deposit

You did the right thing in collecting a security deposit. But what happens when that deposit isn’t enough to cover damages or unpaid rent?

Most landlords collect a security deposit equal to one month’s rent at move-in time to cover any damages or unpaid rent at move-out time. But if there were extensive damages to the property or if the tenant left without paying last month’s rent and there were damages, you’re out some money, and that isn’t right.

You have options, though. Let’s explore them.

1. Communicate with your tenant

To legally withhold the security deposit, you must, in most states, send a letter to your tenant explaining why you are holding some or all the deposit. And you must do so within the time limit specified by your state. You can find your state law here.

Here’s a template for documenting and itemizing deductions from the security deposit.

Send this document or one like it to your tenant to let them know why you are withholding some or all the security deposit.

If they still owe you money beyond the security deposit, you’ll also need to send a demand letter.

2. Send a demand letter

Along with sending the itemized list, you need to send a letter asking for what your tenant owes you, called a “demand letter.”

Here’s a sample of a demand letter you can send a tenant who owes you money.

3. Decide whether you should go to small claims court

You might receive the money owed to you after sending the demand letter. But if you don’t, send the letter a second time, attaching the first letter along with the second. If you still get nothing, you need to assess whether it’s worth your time and effort to take your tenant to small claims court.

Related: How to file a small claims lawsuit against your landlord or renter

The upside of going to small claims court is that you’ll likely win a judgment against your tenant if you can prove to the judge that your tenant does, indeed, owe you money. You get your money (theoretically anyway: see about being broke below), and you get satisfaction in that you were not taken advantage of.

But there are downsides to small claims court as well.

It’s time-consuming.

You need to prepare your case, organize the evidence, learn how to go to small claims court, and attend the hearing in the town in which your rental property is located.

Your tenant might be broke.

If you win a judgment, you still need to collect on that judgment. If your tenant has no money and no job, you won’t be able to collect.

You might not have the evidence.

If you didn’t keep proof, such as how your property looked at move-in time compared with how it looked when your tenant left, you might not be able to win in small claims court.

You pay filing fees and might lose pay by taking time off work.

Filing fees are usually less than $100 and you get them back if you win your case, but if you don’t have a strong case and lose, you need to be prepared to lose your filing fee. And depending on how valuable your time is, if you need to take the day off from work, you need to factor that cost in as well.

Your tenant could file a countersuit.

Whether your tenant has a case against you or not, they could file a countersuit. If you haven’t done everything by the book, you actually might go home owing your tenant money.

But if you can say “yes” to the following, you should seriously consider going to small claims court:

  • Your tenant owes you a significant sum of money.
  • You have proof of what you are owed.
  • Your ex-tenant has a job or a source of income.
  • You have the time and energy for small claims court.

If you don’t think you’ll get much or any money, you might want to write this off as a loss and move on.

Try to prevent excessive damages in the first place

It’s good to know what to do if you’re owed money, but it’s even better to prevent this situation from happening in the first place. Here are three measures to take to help avoid being out any money.

1. Conduct regular inspections

One way to help prevent excessive damage to your rental property is to perform periodic inspections. It’s important to strike the right balance between keeping tabs on what’s going on with your rental property and not becoming intrusive to your tenants. It’s typical to inspect your property at least once a year. Some landlords do this twice a year or even quarterly.

Related: How Often Can a Landlord Inspect a Rental Property?

If you notice a problem, such as a tenant sneaking in a pet or an extra tenant or two, or if you notice a dying lawn or a water stain on the ceiling, you can nip the problem in the bud before a small issue becomes an expensive problem.

2. Have a walk-through a month before move-out

The time to do a walk-through is when the tenant is moving out or immediately after they move out. (You do that, right?) A walk-through lets you know whether you will need to withhold any of the security deposit.

But you can also do a walk-through about a month before your tenant moves out. At that time, you can go over with your tenant any items that need fixing. By doing the walk-through a month in advance, you give your tenant a chance to fix any problems so they can get all or most of their deposit back.

3. Screen tenants

A great way to help ensure you don’t lose money is to get good tenants in your property in the first place. And the way to do that is by tenant screening. Of course, screening doesn’t guarantee a perfect landlord/tenant relationship, but it helps immensely.

I use Cozy to screen tenants. I require a background and credit check on all applicants. The applicants pay directly to Cozy for this service, and I receive the information to review, which helps me decide whom to rent my properties to.

Bottom line

Making repairs because of damages tenants cause and being out rent for a month or more from a tenant who stiffed you are risks landlords take. Knowing what to do if this happens to you and helping prevent this from happening in the first place lessens your risk of losing money.

The problem with collection agencies

Written by Laura Agadoni on . Posted in edited, For Landlords, Laws & Regulations, Leases & Legal, paid

There needs to be methods for creditors to collect debt owed them. Otherwise, they run the risk of going out of business.

As a landlord, you are a creditor. If your tenant skips out without paying rent, or if they damage your place more than what the security deposit covers, you need to be able to recover your money.

One way to try to get your money is to use a collection agency. Doing so might work for you, but you should first understand the process and what it entails before you go down this path.

Why?

Because there are problems associated with collection agencies.

1. Collection agencies don’t collect

The odds of a collection agency actually collecting the debt they are going after are not good.

Estimates vary in just how successful collection agencies are. A generous estimate is 20 percent, meaning that there is an 80 percent chance that a collection agency won’t be able to collect delinquent debt for you. And some estimates are as low as an industry-wide 11 percent success rate. That’s pretty dismal.

To make matters worse, the success rate for collections is down from decades past, when the collection rate averaged 30 percent. So not only are your odds of getting your money low when you use a collection agency, the odds are getting worse as time goes on.

2. Collection agencies are expensive

Ideally, as a landlord, you should get all the money your tenant owes you for back rent, damages, and late fees (that were specified in the lease).

The best way of doing that is to handle the collection process yourself, typically by sending a demand letter, calling your tenant, or by starting the eviction process. You might not have the time, however, to track down your tenant, or you might have tried but were unsuccessful.

Related:

Getting some of the money you’re owed is better than getting nothing. So if you can’t collect on your own, you might consider a collection agency. You’ll pay either a flat rate or a percentage of what the agent collects.

You’ll probably pay less by paying a flat rate, but see No. 1 above—the odds are not good that the agency will be successful in collecting the money your tenant owes you. If you pay a flat fee, you potentially are out even more money. If you pay a percentage of the collection, expect to pay between 25 percent and 60 percent of the collected debt to the collection agency.

3. Collection agents can be shady

Some collection agencies allow their agents to use unlawful tactics to try to collect debt. You might have heard stories about aggressive collection agents who harass people for money they don’t owe, threaten jail to debtors, or who call employers and put people’s jobs in jeopardy. None of that is legal.

Not only is it wrong to subject people to unlawful collection tactics (even people who owe you money), it gives you a bad reputation by associating with unscrupulous people. You might even find yourself being sued.

Fair Debt Collection Practices Act

Collection agencies must comply with federal law, specifically the Fair Debt Collection Practices Act (FDCPA). Ask agencies you’re considering using if they comply with FDCPA regulations. Under the Act, agencies must adhere to the following:

  • No calls to debtors before 8 a.m. or after 9 p.m.
  • No calls at work if the debtor requests that.
  • Collector must stop contact if the debtor requests so in writing.
  • No contacting friends and family more than once. And the one contact can only be to get contact information, not to inform friends and family about the debt.
  • Agent must provide proof of the debt to the debtor.
  • Debtors cannot be threatened with harm.
  • Agent cannot threaten to take legal action unless they actually can and will.
  • Collector cannot lie about who they are.
  • Collector cannot send fake legal documents to trick the debtor.

Unless you check out the firm you are hiring and find out the tactics they use to collect, you could be contributing to the problem.

Finding a good agency

Many collection agencies are reputable and play by the rules.

Here are some ways of finding a good agency:

  1. Ask for referrals from trusted professionals you know, such as your lawyer or accountant.
  2. See whether the agency you are considering is a member of ACA International, The Association of Credit and Collection Professionals, the leading trade organization for the industry.
  3. Look online for complaints against an agency you’re considering.
  4. Make sure the agency is licensed.

Bottom line

Using a collection agency could work for you, but be prepared for disappointment. You’ll have a better chance of collecting your money if you hire a collection agency that specializes in collecting rent from tenants. Also, the younger the debt the more likely it will be to collect. Provide the agency with your lease, what the tenant owes, and all attempts you have made to try to recover the money yourself.

What’s a tenant walk-through?

Written by Laura Agadoni on . Posted in edited, For Renters, Laws & Regulations, Leases & Legal, Maintenance & Renovations, Move-in/Move-out, paid, Security Deposits

Tenant walkthroughAfter you move out of your rental, how can you prove the carpet came with stains already on it or that the countertop didn’t get chipped during your stay?

If you don’t do a tenant walk-through, also called a landlord walk-through or a move-in/move-out walk-through, you often can’t prove existing damage. If that’s the case, it becomes your word against your landlord’s.

Learn how to prove existing damage so it doesn’t become your word against your landlord’s.

Landlords ask for a security deposit to cover any damages caused to the property during a tenant’s stay. Landlords aren’t supposed to charge for normal wear and tear or to pay for brand-new upgrades. (Although a cleaning fee or something along those lines is sometimes required as part of the lease agreement.)

If you’re renting a unit that has some damage, make sure your landlord doesn’t charge you for that damage when you move out. The way to ensure you aren’t is to request a tenant walk-through at two times: move-in and move-out.

The good news is that landlords usually want to do a walk-through just as much as you do. Why? It goes both ways. If you damage something during your stay, the landlord needs to prove that damage was not there when they gave you the keys.

Use a checklist

Before you move into a rental, you need to look at more than the pretty things, such as the nice view from the bedroom window. You need to look for damages or defects, too.

It’s difficult to know what to look for or to know whether you inspected everything you should, so it helps to have a checklist with you. Landlords often provide tenants with a checklist, but if yours doesn’t, you can use this one.

Have a copy for yourself, and make a copy for your landlord. Or just take a picture of your checklist after it’s filled out and signed, and send it to your landlord. The important thing is that you both agree with what’s on the list. Once you do, you both need to sign the checklist.

File the checklist with your lease. You can do this in a file folder that you put in a safe place at home. Or save it on your computer. You’ll need to bring this checklist with you when you move out if you have a move-out inspection with your landlord. If you don’t have move-out walk-through with your landlord, you’ll need the checklist in case your landlord tries to charge you for damages already noted on the checklist.

Take pictures and/or video

You can take pictures or video of the rental in addition to or in place of filling out the checklist. This is another way for both landlords and tenants to have proof of what the unit looked like at move-in and at move-out. It’s best to date stamp the photos somehow, such as using an app that shows the date. With video, state the date at the beginning.

Related: Record a Video of the Move-in/Move-out Inspection

When it’s time to move out

A couple of weeks before you move out, you might want to request your landlord do a walk-through with you. That way, if they see possible problems, they can let you know what you need to fix to avoid being charged.

If your landlord isn’t interested in doing that, you can go over your checklist, photos, or video yourself. If you return the unit in the same condition it was in when you moved in (minus normal wear and tear), you should receive all your security deposit.

Related: The Ultimate Guide to “Normal Wear and Tear”

The day you move out (and after all your stuff is out) is the time to fill out the move-out part of the checklist or to take a second set of photos or another video. Remember to date everything. Now, you have a before-and-after record.

The day you move out, your landlord might do a walk-through with you. But your landlord doesn’t have to do that. They might prefer to conduct the inspection after you leave. Some landlords feel stressed or rushed to conduct a proper walk-through with a tenant following them around.

And that’s okay. Landlords have a certain time limit to return the security deposit or provide a reason why they are holding all or part of it. This varies by state. Look up your state’s law here.

Just make sure if your landlord keeps all or part of your security deposit that it’s for damage you really caused. If your landlord is wrongfully holding your deposit, and if you have completed the checklist or have photos or video, it will be easy enough to prove.

Can a landlord take possession of an abandoned property?

Written by Laura Agadoni on . Posted in edited, For Landlords, Laws & Regulations, paid

Can a landlord take over an abandoned propertyThe answer is a resounding, “Yes!” Landlords can most definitely take over abandoned property.

The real question, though, is how?

Even if you have a signed lease with your tenant, they don’t always stay the entire lease term. Things happen:

  • Maybe they could no longer afford rent.
  • They found a better job elsewhere.
  • They are in jail.
  • They are in the hospital.

Whatever the reason, if your tenant left without telling you, they have left you with an abandoned property.

It’s never a good idea to have an abandoned property. For one, you’re probably not collecting rent. You can sue your ex-tenant for rent until you find a new tenant—that is if you can find your ex-tenant.

Related: 6 ways to find your deadbeat ex-tenants

Another reason abandoned property is not good is that it opens your property up to the possibilities of squatters, vandals, water damage, and fire.

Related: Risks of leaving a property vacant

I have a clause in my lease that states what happens if the tenants will be gone for just seven days:

There is no question that you can and should take control of your abandoned property, but you can’t just start re-keying and tossing out your ex-tenants’ belongings.

Why not?

Your tenant might have left but had every intention of returning to the property. If you took possession in that instance, your tenant could claim wrongful eviction, and you might need to pay damages.

Here’s what to do if you suspect your tenant abandoned your property.

Determine whether the property is truly abandoned:

Unless your tenant told you they were moving out early, you can’t necessarily be sure they abandoned the property just because no one’s been home for a few days or even weeks. Assuming they abandoned the property is not the same as knowing they abandoned the property. Here are some ways to tell.

1. Your tenant is still paying rent

If your tenant continues to pay rent, even though they haven’t been living there for a while, it means the place is not abandoned. In this case, it’s best to contact your tenant to find out what’s going on. If they are away for an extended time, let them know that you or your representative will need to check on the place every week or so until they return. It’s unsafe to leave a property vacant. If your tenant has stopped paying rent and is gone, they might have abandoned the property.

2. Speak with the emergency contacts

This is one of the times to call the emergency contacts listed on your application. Let them know your concerns and ask if they know whether your tenant has moved out.

3. Ask the neighbors

Maybe one of the neighbors saw your tenant moving out.

4. Check to see whether the utilities are off

Give your tenant 24-hours’ notice that you will come in. If you hear back, you can ask what’s going on. But if you don’t get a response, come over and check all the utilities. If they are off, it’s a sign the place might be abandoned.

5. Check for garbage and old food

If the place has old garbage and rotting food in it, you have found another sign that your tenant might have abandoned the property.

What to do with abandoned personal property left behind

If there are valuables such as clothing and furniture still in the unit, the place might not be abandoned. But then again, it might. In this case, you need to get in touch with the tenant. Notify them to pick up their property by a certain date. If they don’t get it by that date, let them know that you will dispose of it, donate it, or keep it for yourself.

Related: What to Do with Abandoned Personal Property

Once you determine the place is abandoned:

If your tenant has stopped paying rent, their emergency contacts told you your tenant has moved, the utilities are off, and nothing is left in the rental, you can probably determine that your tenant abandoned the property. Here’s what to do.

1.  Send a letter

Send your tenant a letter notifying them they have 10 days to let you know whether they have abandoned the rental unit. If you have not heard from them, you will declare the property abandoned.

2. Take photos

Take photos of the property that demonstrate why you think the place has been abandoned, such as lack of furniture or an overgrown lawn.

3. Document and describe the situation

Document the reasons you believe the place has been abandoned, such as not receiving rent or finding that the utilities have been turned off. Note the date of the last rent payment you received.

4. Record your conversations with the neighbors

Keep a record of any interviews you had with emergency contacts or neighbors.

5. Use USPS certified mail

Send all communication to your tenant through certified mail to prove you tried to contact them about whether they have moved and about picking up their belongings.

It’s never fun to find that your property has been abandoned. Your job now is to mitigate your losses by doing something about it. Take back your property as soon as possible, but make sure you do so the right way.

It’s best to have a lease clause that addresses abandonment issues. But whether you have such a lease clause or not, take the necessary steps to document your reasons for taking back your property.

How to convert your home to a rental property

Written by Laura Agadoni on . Posted in edited, For Landlords, Income Ideas, Laws & Regulations, Maintenance & Renovations, Mortgages & Loans, paid

Turning your house into a rentalYou’ve made the decision to convert the home in which you live, in other words, your primary residence, to a rental house.

Maybe you’re moving, or maybe you figure you can make some good money, collecting that all-important cash flow, by making your home your rental property. Whatever the reason for the change, congratulations on your decision!

But you can’t just move out and declare your home a rental. There are some things you need to do first. Find out what they are.

You need to take care of some business before you can turn your primary home into a rental property.

You might need to wait if you have a mortgage

Do you have a mortgage on your home? If so, you generally need to live in the home for at least 12 months before converting it into a rental. Why? Certain perks are associated with buying a primary residence as opposed to investment property.

You often get a lower interest rate and can put down less of a down payment when the mortgage loan is for your primary home versus a vacation home or an investment property.

If you say you’ll live in the house but you really are buying it as investment property, you are committing mortgage fraud. The penalty? Your lender could call in the loan immediately upon finding out. And that will probably lead to foreclosure.

Read your loan paperwork or call your lender to find out the waiting rules that apply to your loan. After you’ve lived in the home for the required time for your mortgage, you’re free to turn your primary residence to rental property.

Find out whether you can get another mortgage

When you move from your primary home, you might want to buy another home to live in. If that’s the case, find out whether you’ll qualify for another mortgage before you rent out your current home.

Your lender might consider the rental income you’ll get, but they might not. Either way, get the ball rolling by talking with a mortgage lender before you make any moves.

Check with your homeowners association

If your home is in a neighborhood governed by an HOA, you need to find out whether there are any restrictions regarding renting out your house. Some HOAs have no restrictions, some allow only a certain percentage or a certain number of homes in the neighborhood to be rentals, and some ban the practice altogether.

Change your homeowners insurance policy

Insurance policies for primary homes differ from insurance policies for rental properties. “In my experience, the insurance classification is really the biggest issue when converting a primary home to a rental property,” says Lucas Hall, Landlordology’s founder and Head of Industry Relations at Cozy.

And Lucas makes a great point. Why? If you need to file an insurance claim after you convert your home to a rental, but your policy has not been changed to a landlord policy, your insurer could deny your claim. “New landlords need to make sure they change the policy from a homeowner occupied policy to a landlord’s policy,” says Lucas.

Related:

Learn about tax changes

It’s best to consult a tax professional both for your rental property and for your primary residence. But you shouldn’t be totally in the dark about taxes. Here’s what you need to know.

The bad news (regarding taxes) is that if you make money, that money is taxable income, so you should figure out how that might change your tax rate.

But here’s some good news. Once you have rental property, you get to take these deductions for rental property expenses:

  • Utilities (if you pay them)
  • Homeowners association fees
  • Landlord insurance policy
  • Repairs you make to the house
  • Property taxes
  • Mortgage interest

Related: Top 15 tax deductions for landlords

Ask your tax advisor or find out from your local municipality about the homestead exemption you probably have on your current home. You are allowed to have that only on your primary residence, so find out what you need to do when you wish to convert your home to a rental.

Ready your property

Look at the competition. Are the rental homes in your area upgraded? If they are and your home isn’t, you should consider putting some money into your home to help ensure you’ll get renters and at market rate.

A new coat of neutral paint throughout the house and nice landscaping in front are good starts. You might want to then make a list of all the improvements you’d like to make and get them done gradually. At the very least, make sure your home is well-maintained and that everything is in working order.

Related: Top 10 Amenities Renters Can’t Resist

Learn how to be a landlord

Once you rent out your home … hello, you’re a landlord. Many of us, myself included, learned the business by jumping in headfirst. But, you are apt to make costly mistakes this way. I know I did.

Related: 5 Unexpected Traits of a Profitable Landlord

But lucky you: If you happened to find this site, browse around. We are here to help you along the way with informative articles, a comprehensive state law section, and a toolbox with tons of resources to help landlords succeed.

Can I get more money from a furnished rental?

Written by Laura Agadoni on . Posted in edited, For Landlords, Income Ideas, Laws & Regulations, paid, Rent & Expenses, Rental Advertising, Security Deposits

Furnished RentalsAn interview with Lucas Hall, Landlordology’s founder and head of industry relations at Cozy.

Not only can you get more money from a furnished rental, demand is growing in the furnished rental market, even with the popularity of Airbnb. Over the past decade, there have been more renters overall, and a percentage of those renters prefer to rent a furnished home for a variety of reasons.

I recently spoke with Lucas to get his opinion on what it takes to get into the furnished rental business and to get his best advice for landlords who are thinking about breaking into this niche segment of “landlording.”

First, lets talk about what exactly a furnished rental is.

There are two types of furnished rentals: long-term, meaning a few months or more, and short-term, such as vacation properties.

Most long-term rental properties typically don’t come furnished. But they can. And there are some benefits for renters. Furnished rentals usually have all the furniture and appliances someone would need, and they may or may not have day-to-day essentials such as plates, silverware, and linens.

Short-term rentals for 30 days or fewer are completely furnished with linens, a vacuum cleaner, grill—everything you can want. The idea is that all you do is bring your suitcase and move in.

What kind of furniture should you put in a furnished rental? Cheap motel furniture? High-end stuff?

The type and quality of furniture to buy should mirror the type of unit you have. So if you have a high-end unit that commands thousands of dollars a month, then you should probably have a leather couch, a nice bed frame, and art on the walls. Whereas if you have housing that attracts contract workers, for example, who make between $20,000 and $40,000 a year, you can have used furniture that’s still in great shape. Or you can get furniture from places like IKEA.

In other words, if your clientele is willing to pay $3,000 a month for a two-bedroom, that’s the clientele who would expect to have a nice sofa.

Another consideration is that if you buy the nicest furnishings, there is a chance things will get stolen. If you buy the best coffeemaker or the most expensive knives, those items might ‘disappear.’ You’re better off buying middle-of-the-road items that serve their function.

What is the market for a furnished rental? Who wants to stay in one?

I have had renters for long-term furnished rentals who are moving from across the country for a job, and it’s a big convenience to just be able to move right in. There’s no need to move furniture or to shop for furniture right away.

Short-term is a whole different game. There you have weekly or monthly vacation rentals. You also have traveling nurses who tend to stay for two to six months, and the hospital pays for it.

Related: How to market your rental to traveling nurses

How do you market a furnished rental? What, if any, are the differences in your advertisement?

It’s important to put in the title that you have a furnished rental. Someone who needs furnished housing will be looking for that first. An unfurnished rental in this case will be a deal breaker. Also describe in the listing what the furnishings are. And make sure you show pictures of all the furnishings.

An important benefit of a furnished rental is that furnished units generally look better in listing photos, particularly when you stage properly. You want your furnishings to look really good in pictures. Your furnishings should be clean, useful, and complement the space and the color scheme.

Whenever you’re advertising a property, whether it’s a long-term unfurnished rental or a short-term furnished rental, you should photograph it with furniture in it.

Related: How to shoot real estate photos like a pro

How much does it typically cost to furnish a rental property?

I have had experience furnishing a two-bedroom condo and a studio. For the studio, I spent between $2,000 and $3,000. With the two-bedroom, I spent about $10,000 to furnish it. I bought a little nicer for the two-bedroom because it was going to be a short-term rental. I needed durable furnishings.

My tip when it comes to buying furnishings, whether it’s for a short- or long-term rental, is to buy stain-resistant materials. Otherwise, you’re stuck with regular cleanings or having to replace the furniture every year.

Now for the question that helps landlords decide whether they will offer a furnished rental or not:

How much more money can you get for a furnished rental?

You can typically get 15 to 20 percent more for a furnished long-term rental. It’s a convenience. People are willing to pay for convenience.

And for a furnished short-term rental, you can get 40 to 50 percent more at a minimum. In some cases, you can even double that, getting 100 percent more, depending on the location of the property.

You can typically get 15 to 20 percent more for a furnished long-term rental. It’s a convenience. People are willing to pay for convenience.

Which locations are best for furnished rentals?

I’ve had the most success with furnished rentals in high-density or highly desirable areas. I’ve had a successful furnished studio, for example, right in the heart of Washington, D.C., right near Capitol Hill and a metro station. People wanted to live there and were willing to pay for the convenience of a furnished rental. Places like that appeal to people whose time is more important than money and who would rather spend more than deal with furnishing a rental property.

Can you charge a larger security deposit for a furnished rental? After all, there are now theft of furnishings and furniture damage to consider.

Absolutely. But you can charge only what your state allows. This is often between one and two months’ rent as a maximum. So most of the time, landlords charge one month’s rent as a security deposit for an unfurnished rental. But for a furnished rental, I think it’s smart to double that, or charge two months’ rent. And just like any security deposit, it’s fully refundable as long as there are no damages.

Do you have any further tips or advice for our readers?

A good opportunity for people who want to do long-term furnished rentals is to get into corporate housing or provide housing for traveling nurses. You figure out if there’s a company or hospital that’s willing to make a corporate agreement with you. They pay the rent and are responsible for finding tenants.

Are you interested in getting into the furnished rental business? Or are you in it now? Let us know in the comments!

4 reasons you should not use a real estate agent to rent a house

Written by Laura Agadoni on . Posted in edited, For Renters, Move-in/Move-out, paid, Rent & Expenses, Rental Advertising, Step 5 - List, Advertise & Show

Don't work with an agentCall me crazy, but I get a little annoyed when real estate agents call me about a rental listing.

Why?

Here’s a typical conversation:

Me: Hello.

Agent: Hello, this is John. I’m a real estate agent with AAA Real Estate. Is the home for rent at 123 Main Street still available?

Me: Yes it is.

Agent: Well, it’s not in the MLS.

Me: A silent pause

Agent: Anyway, my client requested to see it. And I want to show it now.

Me: I’m having an open house Saturday at 3 p.m., and your client is welcome to come.

Agent: No, that doesn’t work. My client wants to see it sooner. When can I show it?

Me: You can’t show it at all. Tenants are currently living there, and I’ve made arrangements to have an open house Saturday at 3. Please invite your client to come then.

Agent: Do you pay an agent commission?

Me: No.

Agent: Thank you. Goodbye.

And I never hear from this agent or their client again.

Here are four reasons why you shouldn’t use an agent when you want to rent a home:

1. Real estate agents use only the MLS

If you ask a real estate agent to find you a rental property, they will most likely look only on the Multiple Listing Service (MLS), which only agents can access.

In fact, I asked an agent the other day how he finds rental properties for clients. He said he finds them through the MLS.

Here’s the problem of looking only at the MLS for rental properties: Since only agents can list properties through the MLS, real estate agents are missing all the properties landlords like me advertise. And if your real estate agent is missing out on properties listed by non-agents, you are too.

You are better off, when looking for a rental property, to look online.

You’ll probably find lots of rental homes by looking at various real estate sites on your own, more than what your real estate agent will find by using only the MLS. Of course, you can always find properties and send them to your agent, but then why not just contact the person on the listing yourself?

Related: The Only 3 Websites You Need to List a Rental Property

2. Agents expect to be paid

Real estate agents mainly work with clients who are buying and selling homes. In those cases, the seller typically pays the real estate agent by giving the agent a percentage of the home’s selling price.

So the expectations for most real estate agents who are helping a client trying to rent is that the landlord will pay the agent for finding a tenant, typically one month’s rent (similar to getting a cut of a home’s sale).

But in a rental market where most applicants find rental properties without an agent, landlords have no reason to pay an agent. In other words, if I have five applicants for a property, four who represent themselves and one who comes with an agent who expects me to pay them a month’s rent, guess who I’m not renting to?

If you use an agent in a market where most people are finding properties on their own, you will likely be taking yourself out of the running to land a rental property.

3. Agents don’t really want to work with you

I’ve always suspected that statement to be true, and now I have a couple of stories to back this up. I think this probably represents what many agents think.

A real estate agent called me the other day on behalf of her client, and when I told her I don’t pay an agent commission, she let me know that she doesn’t know what to tell renters who call her for help. She wants to help them find a home, but if the landlord won’t pay her commission, she is not interested in working for free.

Another agent told me that he usually doesn’t work with clients looking to rent but that he will sometimes do so to help a friend out.

Since it’s not the norm for homebuyers to pay an agent (home sellers typically do), renters and agents expect the landlord or property owner to pay the agent just as home sellers (owners) do. But while most home sellers use and pay real estate agents, most small-time property owners do not use agents to get their property rented, so they have no interest in paying your agent.

If you really want to use a real estate agent to help you find a rental home, you might want to consider paying your agent yourself.

4. Agents often do more harm than good

Landlords who know their business find out what market rents are for similar rentals in their area. (I use the Cozy rent estimate tool in addition to keeping up with rent prices in my area.)

But when a real estate agent comes along, they are usually loaded for bear and ready to negotiate rent price—it’s just part of their job, like offering less than asking price for a home to buy. Although that’s standard practice for the home buying process, it’s not typical for landlords like me who plan to rent the property for the price listed.

Just as I don’t pay agents a commission, I am not interested in taking less than my advertised rate for my rental properties. If you’re paying an agent for their great negotiating skills, your money is largely being wasted when it comes to renting versus buying a property.

When real estate agents are helpful

There’s a place for real estate agents and rental properties. In big cities like San Francisco or New York where it’s difficult to find housing, you might benefit from using an agent. Or if you are relocating and know nothing about the area, you might need help from an agent who can show you around. Other than that, you are typically better off to cut out the middleman and find a rental house yourself.

Should you let tenants make improvements?

Written by Laura Agadoni on . Posted in edited, For Landlords, For Renters, Maintenance & Renovations, paid, Step 10 - Repair & Maintain

You have a house that’s, to put it mildly, ugly.

The front porch sags, the exterior paint is peeling, the carpets are stained and worn, and the circa-1960 bathrooms have never been updated. But you have renters anyway, and they want to make improvements. Should you let them?

That’s almost exactly what happened in one Pennsylvania home. It turned out badly for the landlord who gave the month-to-month tenants a notice to vacate … after all the renovation work was complete. The court made the landlord pay more than $11,000 to reimburse the tenants for the improvements they made.

So the question remains: should you let tenants make improvements?

The answer: it depends.

Your tenant asks

Tenants often ask to make improvements to a home they will rent. They need to live there, after all. Common requests are to paint the walls, drill holes to hang window treatments or run cable, replace the flooring, update the light fixtures, create a garden in the backyard, and change the bathroom sinks.

Related: Should I allow my tenants to paint a rental property?

What you should do when your tenant asks to “improve” the home is to calculate how much it will cost to return the unit back to its original condition if need be. That might be necessary if the tenant’s so-called improvements make your rental less desirable. But, on the other hand, the alteration might very well be an improvement you can leave. And that will be a benefit for you and will make your current (and probably future) tenant happy.

If the security deposit will cover fixing the alteration, you might consider taking the risk and say, “Yes.” If the security deposit won’t cover the cost to return the property to its original state, or if you just don’t like the idea of what your tenant proposes, you can—to use Nancy Reagan’s famous line: “Just say no.” This is your investment we’re talking about.

But who pays?

If your tenant makes an “improvement” that devalues your home, and if they did so without your permission, they typically need to pay, and you would use that money to fix the issue. But if your tenant adds value to your house, like the Pennsylvania example above, the situation regarding who pays becomes more difficult.

One option is that you strike a deal where you pay half and they pay half. Another is that you might allow an improvement but only if they pay for all of it. Or you might decide the improvement will be a good value for your property, and you will pay for all of it.

Whatever you decide to do, it’s best if you address the issue of tenant improvements in the lease. If you haven’t done that beforehand, you can add an addendum to the lease that makes it clear who is responsible for paying for improvements or whether they can be done at all.

Related: The differences between repairs and improvements

Here’s a sample of what I have in my lease:

That guards against renters who decide to take matters into their own hands during their stay and allows for some negotiation.

If you decide to let your tenant make improvements, you could include language like this, courtesy of Law Insider:

For work you will do:

That ensures you will be paid for work you do that is requested but not a habitability issue.

For work done by either party:

This clause makes it clear that you get to keep the improvements to the property.

A clause if the alterations devalue the home:

This is the clause you point to if you need to withhold all or part of the security deposit.

What if your tenant makes alterations without your permission?

As soon as you notice that your tenant altered your property without your permission, you need to act. At the very least, send a letter or email letting them know that you are aware of the change to the property and that this change is a violation of the lease.

Then let your tenant know the consequences of their action. The change might be something you like. If so, let them know that they don’t need to restore the property to the original condition but that you will not pay for the alteration since you did not approve it.

If you don’t like the change, tell your tenant to restore the property to its original condition. But if that doesn’t happen, let them know that you will do so and will deduct the money from the security deposit.

If the alteration was unacceptable and the tenant is not cooperating with you, you can choose to evict at that point for violating a lease term.

Related: 4 tips for first-time landlords

When you should consider making improvements yourself

Your rental property is an investment. You should, therefore, protect that investment by at least maintaining and repairing as necessary. It’s also a good idea to know what the competition is like in your area. Most tenants don’t stay in a rental property forever, meaning that you will probably need to re-rent at some point.

It’s good to understand what tenants expect in a rental property for your price in your area. If your rental is lacking, you might want to make upgrades to make it more desirable. Most renters, for example, like stainless steel appliances, renovated bathrooms and kitchens, and central air conditioning.

Related: Top 10 amenities renters can’t resist

The bottom line

Rental properties need improvements from time to time. The best situation is for you to be on top of maintenance, repairs, and possible renovations for your property. But if you don’t do that, or if your tenant has suggestions to improve the space, you might want to entertain your tenant’s request to make improvements. Just make sure you and your tenant completely understand the terms of the deal.

Have you let tenants make improvements? Have you ever improved your rental property? Tell us about it in the comments!

When to sell a rental property

Written by Laura Agadoni on . Posted in edited, For Landlords, Income Ideas, paid

I often hear people talk about the day they’ll sell their rental property.

That’s a big assumption. There’s no law that says you must sell a rental property someday. You can hold onto rental property throughout your retirement years if it’s bringing positive cash flow.

But there are legitimate reasons to sell a rental property. So how do you determine the reasons and timing?

You want to cash in

Guessing the market is one strategy—buy low, sell high. This is a favorite strategy of house flippers who traditionally sell after holding the house a year or less. House flippers are typically not buying property to use as rental property. That’s usually Plan B if the house won’t sell. But some flippers have a five-year plan, where they hold a property for five years or so, making improvements gradually while collecting rent. Then when the house is sufficiently upgraded and if prices have risen in the area, they sell.

The property isn’t performing well

The best way to determine whether your rental property is doing well is by cash flow. Are you making or losing money each month? Determine this by taking your rental income and subtracting all your expenses associated with the property, including a mortgage payment. If you’re losing money, you might want to sell.

But first consider whether you can tweak the numbers so that you will have a positive cash flow. Do an analysis of what similar rental properties charge for rent in your area. You can save yourself some research time by getting a Rent Estimate report in Cozy. If you find you can get more for your rental than what you’re currently charging, consider raising the rent as soon as you can and keep the property.

For a more in-depth look at number crunching, check out this blog post. (I’ve interviewed this author many times, and he knows his stuff.)

You’re not cut out for the job/you’re just over it

Some people like the idea of renting property, but they let their emotions get in the way. They may become friends with their tenants, for example. If that happens, they don’t make the best business decisions. They may let tenants make late rent payments, for example, or they may waive their right to make periodic inspections because they feel awkward doing so. Landlords like this, may find—as what happened to me with my first rental—that their tenants have become way behind on rent and have damaged the place beyond repair. If that happens, it could be time to sell—either that or hire a property manager.

Related: The temptation of being friends with your tenants

You’re moving

If you manage your own rental properties, it’s easier to do so when you live nearby so that you can pop over when it’s time to inspect and maintain the property or to make or arrange repairs. If you want or need to move, you can keep your rental property and manage it from afar. You’ll probably need to hire a property manager, though. Another option would be to sell, especially if you’re moving to a favorable spot for rental property investment. You can buy another property in the new location.

Related: Should I invest in local or long-distance rental properties?

You want to trade it for something else

The rental property you own might be due for some major repairs, such as a new roof or HVAC system. You might want to sell rather than shell out a lot of money to replace big-ticket items. Or you might have bought an inexpensive property, but now you want to buy a nicer property and collect higher rents. If you decide to trade up, consider doing a 1031 exchange to postpone paying tax on any income gain your receive through the sale.

Related: The complete guide to 1031 exchanges

It’s time based on your plan

You might have bought rental property knowing that an event would trigger its sale. This could be sending a child to college, buying your dream home, or getting ready to retire. A death in the family or a job layoff are other reasons you might want to sell your rental property. But don’t make rush decisions. You might wish to meet with a financial advisor during emotional times in your life. It might make more sense, for example, to hold the property if it’s a good income stream for you.

The bottom line

If you decide it’s time to sell a rental property, you can feel better about your decision if you have a solid reason. Note that you can sell your rental property at any time, even with tenants in it. Just make sure you are doing so correctly.

Related: Tenant’s rights when selling an occupied rental property